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1 Billie Pettersson and Frank R. Lichtenberg June 2013 Report from SNS s research programme The Value of New Pharmaceuticals SNS is a non-partisan and independent non-profit organisation that contributes to decision makers in politics, public administration and business being able to make well-informed decisions based on science and factual analysis. SNS, Jakobsbergsgatan 18, Box 5629, SE Stockholm, Tel ,

7 Executive Summary Life expectancy around the world has increased dramatically over the past fifty years, while at the same time health care spending has risen substantially. Historically it has been difficult to quantify the relationship between health care spending and improvements in longevity.we conducted a study to assess the contribution of one indicator of changes in health care, the introduction of new drugs, to increased longevity. New drug launches are of particular interest because they account for a substantial fraction of medical innovations. We used longitudinal, disease-level data to analyze the impact of pharmaceutical innovation on longevity and medical expenditure in Sweden during the period We found that diseases that benefited from more pharmaceutical innovation had greater increases in longevity. Pharmaceutical innovation accounted for almost one third (31.6%) of the 1.88-year increase in mean age at death during the period Our models included year and disease fixed effects, so they controlled for the overall increase in Swedish longevity and for stable between-disease differences in mortality, but not for non-pharmaceutical innovation, which might cause overestimation of the effect from introduction of pharmaceuticals. However, analysis based on U.S. data showed that the rate of pharmaceutical innovation is not positively correlated with the rate of medical procedure innovation and may be negatively correlated with the rate of diagnostic imaging innovation. This suggests that failure to control for other medical innovation is very unlikely to result in overestimation of the effect of pharmaceutical innovation on longevity growth, and may even result in underestimation of this effect. We found that longevity depends on the number of drugs (substances) to treat a disease, not the number of chemical subgroups (drug classes) developed to treat the disease. Diseases that experienced more pharmaceutical innovation saw smaller increases in hospital use. New drugs have been cost saving: the reduction in annual hospital expenditure induced by pharmaceutical innovation has been greater than the induced increase in annual pharmaceutical expenditure. New drugs have reduced lifetime medical expenditure, despite the fact that they increased life expectancy by 6 months during One limitation of this study is that while it does provide information about medicines on an aggregate level, it does not indicate medicines in which to invest. Another limitation is that the outcome measure is related to longevity, which is indeed a widely used indicator of the health of a population, but it reflects the quantity rather than quality of life. Many medicines mainly improve quality of life and this will not be covered in our study. Nevertheless, the conclusion is that new pharmaceuticals, on an aggregate level, are an important production factor in health care. The uptake and use of (new) medicines is determined by policies at several levels: at the macro or healthcare system level, the service organization level and the clinical practice level. During the last two decades a variety of pharmaceutical policies has been introduced in Sweden, which might have had an impact on the use of new medicines, but no thorough and complete review of these polices has yet been carried out. There are potential new pharmaceuticals that increase life expectancy and/or lead to reduced use of other resources. It is important to prioritize so that resources could be allocated to these products. Pharmaceutical policies should be balanced to allow society as well as 7

8 patients to benefit from the value of improved health from new medicines, now and in the future, while at the same time considering other policy objectives such as cost control. We suggest that the impact of pharmaceutical policies on the use and rate of uptake of new medicines introduced in recent decades in Sweden be reviewed. It could be useful to consider this study, for instance, when determining how to optimally invest in pharmaceuticals on an aggregate level. 8

9 1. Introduction Longevity has constantly been increasing in the Organisation for Economic Cooperation and Development (OECD) countries, with the life expectancy at birth now being almost 80 years, on average. The increase in longevity after the first half of 1900 is largely attributable to progress in medical technology. Over the same period, health care spending has risen substantially.the growth rate in health expenditure has risen more rapidly than the growth in GDP in many countries during the last few decades and constitutes, on average, 10% of GDP in OECD countries 1, which is also the case for Sweden. It has historically been difficult to quantify the relationship between health care spending and longevity improvements[1]. We assessed the contribution of one indicator of changes in health care, the introduction of new drugs, to improved longevity. Launches of new medicines are of particular interest because they account for a substantial fraction of medical innovations. For instance, expenditures for pharmaceuticals are around 15% of total health expenditure on average in OECD countries. In Sweden, total expenditures for pharmaceuticals had been rising during earlier decades but have been declining from 14% of total health care expenditures 2 in 2002 to 12.6% in Extensive research has shown that pharmaceutical innovation has contributed greatly to improved health. This research is mainly carried out in different therapy areas and not on an aggregate level, which might be limiting if the question is how to optimally invest in pharmaceuticals on an aggregate level, for instance when the level is to be determined within the state budget. An interesting issue from a policy perspective would be to understand the contribution of pharmaceuticals to the production of health care, in order to ascertain optimal levels of medicine use that would benefit the society, i.e. the return on investment or the value of innovation of pharmaceuticals. In 2011 the Swedish government launched an inquiry [2] into certain issues that concern pricing, supply and market conditions within the pharmaceutical and pharmacy area. Important starting points for a future pricing model, according to the inquiry s directive, is that it must create preconditions for good cost control at the same time that it must ensure the satisfactory availability of effective pharmaceuticals and offer good preconditions for the research-based pharmaceutical industry. A report of the inquiry was presented in October 2012 [3]. The report states that new effective treatments that lead to improved health as well as increased productivity of the health care system should be made accessible to patients as early as possible in order to provide the public with as good and modern care as possible. The leading principle for the inquiry is that the system for uptake as well as follow-up for new and for old drugs should be designed to support optimal use of medicine (English translation). Based on the materials available, the inquiry concluded however that it was not possible to 1. OECD Health Data 2012: 2 Total expenditure on pharmaceuticals and other medical non-durables. 9

10 ascertain whether use of medicines in Sweden is optimal, or whether the adoption of new drugs is too extensive or too restrictive. The uptake and use of (new) medicines is determined by policies at several levels: at the macro or healthcare system level, the service organization level and the clinical practice level. A variety of national as well as regional policies which might have had an impact on use of pharmaceuticals were introduced in Sweden during recent decades, but there is no comprehensive evaluation of these policies and what impact these might have had on the uptake and use of new medicines in Sweden. We carried out a study that provides information on the value of pharmaceutical innovation by estimating the impact of pharmaceutical innovation on longevity and the cost-effectiveness of the new medicines. The contribution of pharmaceutical innovation and the cost-effectiveness of that innovation on an aggregate level could be important indicators of whether pharmaceutical policies are efficient with respect to the rate of uptake and use of new medicines, or when conducting cost-benefit analysis of pharmaceutical policies. This information could be helpful when designing pharmaceutical policies that aim at targeting optimal use of new medicines. The purpose of this report is to provide estimates on the value of pharmaceutical innovations within the context of policies that might have affected use of new medicines in Sweden. The report starts by providing a background on determinants of use of new medicines, a background on pharmaceutical policies that were introduced during the last decade in Sweden and finally a section where we review indicators and literature on the use of new medicines in Sweden. In Section 3 we present estimates on the value of pharmaceutical innovations that were introduced in Sweden followed by a discussion of the findings. We present our conclusions and summary in Section 4. 10

11 2. Background 2.1. Determinants influencing the use of new medicines Pharmaceuticals represent around 15% of overall health expenditure in the OECD countries, and increasing expenditures have led to the introduction of different policies aimed at controlling costs and improving the efficiency of drug use [4]. These policies have important implications for the access, rate of uptake and use of new medicines. Danzon et al. observed that only 23 27% of products launched between were available in countries (such as Sweden) with pricing and reimbursement (P&R) control, compared to 63.8% in the US, where access to the market is generally not restricted by P&R decisions [5]. Use of new medical technology varies widely between countries but also between different disease areas within a country [6]. The causes for variation in diffusion of new drugs could be differentiated into three broad groups, macro- or system-level determinants, service organization determinants and clinical practice determinants [7]. These categories are interrelated. For example, a readiness among clinicians to adopt innovations in clinical practice is determined, to some degree, by the ease with which access to innovation is provided at the system level. The relative importance of these factors will vary depending on the disease area in question and the system context. In explaining the potential causes of international variation found in the study mentioned above [6], a number of common themes emerges: (1) health technology assessment (HTA) processes and outcomes can have a significant impact on levels of usage; (2) service planning, organization and direction-setting play an important role in enabling or restricting usage; and (3) clinical culture and attitudes towards treatment remain important determinants of levels of acceptance. These themes often work in combination, so, for example, the impact of HTA can either be mitigated or amplified by issues relating to service organization or clinical culture, where the main issues are the availability of or access to specialists Pharmaceutical policies in Sweden During the past two decades, increasing pharmaceutical expenditures led to the introduction of a variety of mainly demand-side policies aimed at restricting the escalation [8 10]. These policies were designed to promote the rational and costeffective use of drugs at national as well as regional levels. Two of the most important policies were the devolution of the pharmaceutical budget to the county councils in 1998 and implementation in 2002 of a new system for pricing and reimbursement (P&R) according to value-based pricing (VBP). There are indications that the policies introduced might have had a restrictive impact on the use of (new) medicines in Sweden. The prior P&R scheme was replaced by the current VBP system, where HTA became a foundation for P&R decision-making. HTA has emerged as an important foundation for guiding decision-making and allocating resources in health care by TLV, Sweden s Dental and Pharmaceutical Benefits Agency for making P&R decisions. VBP means that a drug s value, i.e. cost-effectiveness, is evaluated and a price premium over its one or more pre-defined comparators may be determined and used to set the price of that 11

12 pharmaceutical. Based on this value assessment, manufacturers are rewarded for the level of innovation they bring. In principle, the use of VBP can provide benefits, by enabling governments to make decisions driven by value, encouraging innovation, and providing patients and physicians with the information needed to make the best treatment choices. The main difficulty in defining price (or accepting a price level for listing) via VBP is determining how to define the value of the medicine in clinical practice and challenges related to measuring that value. Therefore, the utility of VBP in encouraging innovation and value-added health care depends on the assessment process, including when and how a review is performed, the chosen comparators and the resulting decision-making procedures, including implementation. The VBP approach and current methodologies work better in cases with perceived breakthrough innovations, while it is much more challenging when it comes to cases with incremental innovation. The introduction of VBP certainly influenced decision-making concerning new medicines to be listed and made available in the benefits scheme. However, this does not mean that the new medicines are being used. Access problems may arise, if the agency performing value assessments does not have a mandate to implement its decisions/recommendations [11], as is the case in Sweden and other health care systems with decentralized budgets. There isn t always consistency between national and regional authorities regarding guidelines and recommendations. Indeed, at this time, recommendations on some new medicines in the regional guidelines differ from the evaluations and decisions made by the TLV. The P&R system not only affects current access to new medicines, it also serves as a signaling system to the industry: it may have a major impact on investment decisions in R&D and access to new medicines in the future, i.e. dynamic efficiency [12, 13]. As currently implemented, the impact of VBP on dynamic efficiency is not clear at this point [11, 14]. All in all, the VBP approach and current methodologies are limited in their ability to deliver relevant knowledge on incremental innovation and on dynamic efficiency, and this is one of its fundamental flaws. Another reform that might have had an important impact on access to and use of medicines concerns the drug budget, which was devolved to the counties in 1998 [8]. With the drug budget devolution, an intrinsic conflict arises when the national P&R agency (TLV) makes decisions about pricing and reimbursement based on the costeffectiveness of drugs, while the budget responsibility for drugs falls to the healthcare providers at the regional level [15]. If health care providers perceive new drugs to be too expensive and therefore restrain from accepting them, the result may be suboptimal decisions and unnecessary societal costs [16]. Other important factors that might have contributed to the limited adoption of innovative medicines are the reforms that were introduced to encourage so-called rational use of prescription medicines regionally, which have kept up with the devolved drug budgets and were introduced during recent decades [9, 17, 18]. These reforms include measures managed via regional Drug and Therapeutic Committees, such as the production of regional guidelines, academic detailing, benchmarking, prescribing targets, and economic incentives [8]. 12

13 2.3. Access, uptake and use of (new) medicines in Sweden In this section we cover the background on indicators for access, uptake and use of medicines in Sweden. Access to medicines refers to whether new medicines are launched/made available on the Swedish market and made available in the reimbursement system. Uptake refers to the rate of use of new medicines while use of medicines refers to an overall use, which could be use of new as well as old medicines. In a study on international variation in drug usage, volume data were used to measure consumption in various comparable countries and in various different treatment areas [6]. The drugs studied were a combination of new drugs and older drugs. Although some countries emerged as generally high or low users of (new) drugs, there is no uniform pattern across disease areas and categories of drugs. France, Spain, the US and Denmark had high levels of usage generally, but not across all disease areas. Low levels of usage of (new) drugs were also observed for all four countries in some categories. Generally lower than average levels of usage were observed in Norway and Sweden. Sweden had the second lowest ranking out of 14 countries. The ranking for Sweden differed widely between treatment areas, from (3rd to 13th), where the high ranking (3) was in rheumatoid arthritis and the lowest usage was in treatment of osteoporosis (13). The comparison based on cancer treatments could be used as an indicator for use of new drugs. In that respect Sweden was ranked somewhat higher in use of new cancer drugs introduced 0 5 years earlier and older (introduced more than 10 years earlier) but somewhat lower for drugs introduced 5 10 years earlier. The report stresses that there is not always a consensus about what the optimum level of drug usage in different disease areas would be and that the appropriate level of usage may vary because of different factors at work in different countries. For some disease areas, high usage may be a sign of weaknesses at other points in the care pathway and low usage a sign of effective disease prevention. Equally, for others, low usage may imply that patients needs are not being met effectively and high usage may imply that patients are receiving the best treatment. Nevertheless, several indicators have shown that uptake of new medicines has been too restrictive in Sweden during the last decade. The first dispensing of a drug within a year after launch in Sweden was found in 89% of the corresponding in Denmark and in 94% in Norway respectively [19]. Between 2006 and 2008, 65 new drugs were introduced in Europe, of which 65% were available in Sweden, compared to 89% in Denmark and 60% in Norway [20]. In a comparison based on 47 innovative drugs in 25 EU-countries a ranking was made with regard to accessibility. It was found that 22 out of these 47 drugs are used in Sweden, which implies a ranking for Sweden at 8 of 25 countries. The conclusion from the study is that use of medicines varies considerably between countries in Europe [21], but the variation could not be explained and optimal levels were not possible to determine in the study. In a comparison of the uptake of new diabetes and anti-coagulant drugs across Europe, uptake in Sweden was found to be at lower range, far below the average in Europe, while the uptake of new drugs to treat the wet form of age-related macular degeneration (AMD) was far above average [22]. In a comparison of the uptake of new cancer drugs in Europe, Sweden was found to be on an average [23]. And the uptake and use of drugs for multiple sclerosis was above average [24] as was the use of biologic treatments of rheumatoid arthritis also [25]. Furthermore, it is difficult to rank use of medicines on a general level, because of the internal variation due to different treatment traditions, since the ranking will depend heavily on what drugs are included in the comparison. It has been suggested that the main factor 13

14 behind the escalation in drug costs in Sweden between 1990 and 2000 has been a change from the use of old to new and expensive drug therapies [26]. During the last decade however, pharmaceutical expenditure has been flat [27], and the percentage of overall drug expenditure in Sweden that was allocated to new medicines introduced during the preceding five years has declined rapidly from 11% in 2005 to 5% in This mainly reflects the drop in medicines used in outpatient care. For medicines used primarily in hospital care, the development was the opposite, the expenditures on medicines introduced over the preceding 5 years increased from 8% in 2005 to 14% in 2011[3]. Information on the rate of uptake of new medicines is limited. However, the TLV, Sweden s P&R agency, conducted an analysis of medicines for outpatient care, which concluded that Sweden provides relatively early access to new drugs, even if no evidence was found that the system leads to much earlier introduction than comparable countries. The government inquiry concluded that Sweden does not provide earlier access to innovative drugs than other countries [3]. All in all, the rate of (early) uptake and use of medicines seems to be more limited in Sweden than it is in several other countries. The impact of this comparatively restrictive use should be evaluated and considered from a policy perspective. The question is whether the present practice is the outcome of an informed and intentional decision or if the policies that were introduced created a system that became too restrictive to be optimal from a societal perspective. 14

15 3. Value of innovation Increased longevity is an important part of economic growth and development, broadly defined. In the OECD countries, life expectancy has increased by 10 years since 1960 [28]. The enormous monetary value of increasing life expectancy has been noted in studies by Murphy and Topel [29]. The economic value of increases in longevity over the twentieth century has been estimated by Nordhaus in a first approximation to be about as large as the value of measured growth in non-health goods and services [30] and the increases in medical spending since 1960 in the USA were found to have provided reasonable value [1]. Based on Swedish data, estimates of the monetary value of increasing life expectancy at birth during the period suggest that the value is about 5 million SEK per person and the value of the total increase in life expectancy was estimated to be about 75% of the increase in GDP during that period, about 1,552 billion SEK [31]. Medical innovation has had a major impact on both healthcare outcomes and the quality of care but it may also have been a major driver of health care spending over the postwar period [32, 33]. Some studies have concluded that medical innovation has been the main reason for the rise in health care costs. However, some of these studies may not have fully accounted for spillover across episodes of care or medical conditions. For example, a recent study of a cohort of US Medicare beneficiaries aged 65 years and older with a diagnosis of cataracts found that patients who had cataract surgery had lower odds of hip fracture within one year after surgery compared with patients who had not undergone cataract surgery [34]. It was found that states that adopted new drugs and diagnostic imaging procedures more rapidly did not have larger increases in per capita medical expenditure, controlling for other factors [35]. Also, Lichtenberg (2011) found that hospital procedure innovation increased survival of Western Australia hospital patients but had a negligible effect on their medical expenditure [36] Contribution of pharmaceutical innovation to longevity evidence from Sweden In this section we summarize the evidence based on data from Sweden on the contribution of pharmaceutical innovation to longevity, and to decreasing use of hospital days. We also investigate the pharmaceutical expenditures associated with pharmaceutical innovation and, finally, we use our estimates on effects and costs to estimate the cost effectiveness of pharmaceutical innovation. The entire paper is available as a working paper [37] and is accepted for publication in Economics of Innovation and New Technology. We used longitudinal, disease-level data to analyze the impact of pharmaceutical innovation on longevity and medical expenditure in Sweden during the period The measures of longevity we used are based on the age distribution of deaths caused by a disease in a given year and in the increase in the fraction of deaths that occurred at an age greater than 75. Pharmaceutical innovation can be measured in several different ways, because active substances are divided into different groups according to the organ or system on which they act and their therapeutic, pharmacological and chemical properties. In the Anatomical Therapeutic Chemical (ATC) classification system developed by the World Health Organization Collaborating Centre for Drug Statistics Methodology, drugs are classified in groups at five different levels. The highest (1 st ) level is the anatomical 15

16 main group level; there are 14 anatomical main groups. The 2 nd, 3 rd, 4 th, and 5 th levels are therapeutic subgroup, pharmacological subgroup, chemical subgroup, and chemical substance, respectively. 3 The measure of pharmaceutical innovation we used was based on the number of drug classes (chemical subgroups) and number of drugs (chemical substances) previously introduced to treat a condition. We will investigate the effects of both new chemical substances and new chemical subgroups on longevity.we pooled data from several rich data sources. Longitudinal disease-level measures of pharmaceutical innovation were constructed from Läkemedelsverket (Sweden s Medical Products Agency) 4 and from Thériaque. 5 Longitudinal disease-level data on mortality was obtained from the WHO Mortality Database. 6 Longitudinal disease-level data on hospital utilization was obtained from Eurostat. 7 Longitudinal data on pharmaceutical expenditure and innovation, by drug class, was obtained from the IMS Health MIDAS database. 8 Some additional data was obtained from the OECD Health database. We used longitudinal, disease-level data to estimate difference-in-differences models of the effect of pharmaceutical innovation on longevity. In essence, we investigated whether the diseases that experienced more pharmaceutical innovation had larger increases in longevity. Our models include year and disease fixed effects, so they will control for the overall increase in Swedish longevity and for stable between-disease differences in mortality. From 1997 to 2010, mean age at death increased by 1.88 years, from to years. We estimate that, if the number of chemical substances marketed up to six years earlier had not increased, mean age at death would have increased by 1.29 years, from to years (Figure 1). Hence pharmaceutical innovation is estimated to have increased mean age at death in Sweden by 0.60 years (7.15 months) during the period almost 1/3 (31.6%) of the overall increase in mean age at death. It accounted for twice as large a fraction (63%) of the increase in the fraction of deaths that occurred at an age greater than 75. We found that longevity depends on the number of drugs to treat a disease, not the number of chemical subgroups (drug classes) developed to treat the disease. 3 The complete classification of metformin illustrates the structure of the code: A Alimentary tract and metabolism (1st level, anatomical main group) A10 A10B A10BA Drugs used in diabetes (2nd level, therapeutic subgroup) Blood glucose lowering drugs, excl. Insulins (3rd level, pharmacological subgroup) Biguanides (4th level, chemical subgroup) A10BA02 Metformin (5th level, chemical substance) Thériaque (http://www.theriaque.org/) is a database of official, regulatory and bibliographic information on all drugs available in France, intended for health professionals. Funding is provided by the French Centre National Hospitalier d'information sur le Médicament IMS describes MIDAS as a unique data platform for assessing worldwide healthcare markets. It integrates IMS national audits into a globally consistent view of the pharmaceutical market, tracking virtually every product in hundreds of therapeutic classes and providing estimated product volumes, trends and market share through retail and non-retail channels. MIDAS data is updated monthly and retains 12 years of history. IMS Institute for Healthcare Informatics (2011), The Global Use of Medicines: Outlook Through 2015, May. hcare%20informatics/global_use_of_medicines_report.pdf 16

17 Figure 1. Mean age at death: Actual vs. in absence of pharmaceutical innovation 80,5 80,0 80,28 79,5 79,69 79,0 78,5 78,40 In absence of 78, We examined the effect of pharmaceutical innovation on hospital use during the period The estimates indicate that an increase in the number of drugs marketed for a disease reduces the number of hospital days (number of discharges and length of stay), due to the disease eight years later, primarily due to its effect on the number of hospital discharges. We estimated that if no new drugs had been put on the market during the period , the number of hospital days would have been about 12% higher in 2009 (Figure 2). 17

18 Figure 2. Hospital days, : Actual vs. in absence of pharmaceutical innovation if no drugs We then assessed the impact of pharmaceutical innovation on pharmaceutical expenditure using longitudinal data on about 300 classes of drugs. We estimated that the increase in the number of chemical substances increased pharmaceutical expenditure in 2009 by 37.2%. We used our estimates to assess the incremental cost-effectiveness of pharmaceutical innovation, i.e. the cost per life-year gained from the introduction of new drugs (Table 1). First we calculated a baseline estimate of the incremental cost-effectiveness ratio (ICER), based on our estimates that, if no new chemical substances had been marketed during a previous 9-year period, (1) mean age at death in 2009 would have been 0.47 years (5.64 months) lower; (2) per capita pharmaceutical expenditure in 2009 would have been $91 lower; and (3) per capita hospital expenditure in 2009 would have been $112 higher. Assuming that pharmaceutical innovation had no effect on other medical expenditures, lifetime medical expenditure would have been slightly lower in the absence of prior pharmaceutical innovation, due to the reduction in life expectancy. The baseline estimate of the cost per life-year gained from the introduction of new drugs is $233 (= -$109/ years), which is a very small fraction of leading economists estimates of the value of (or consumers willingness to pay) for a one-year increase in life expectancy. 18

20 3.2.Discussion Findings based on Swedish data confirmed findings from earlier studies on the contribution of pharmaceutical innovation to longevity using aggregate data [38-40]. For instance, the contribution of pharmaceutical innovation to recent longevity growth in Germany was investigated using longitudinal, annual, and state-level data during the period [40]. The estimates of the effect of the vintage of prescription drugs (and other variables) on life expectancy and age-adjusted mortality rates of residents of Germany implied that about one-third of the 1.4-year increase in German life expectancy during the period was due to the replacement of older drugs by newer drugs. Using patient-level data similar results were observed to the studies based on aggregate data. Patient-level data on health care use from a large number of patients in Quebec, Canada, were linked to survival [41]. The hypothesis was that patients using newer medicines were likely to live longer than patients using older medicines, controlling for their medical conditions, age, gender, location and so forth. The findings suggested that new treatments introduced during the last three decades reduced mortality by 51% in the entire study population. Similar results were obtained for mortality of cancer and of cardiovascular diseases. For review of other studies based on patient level data, see [42, 43]. Innovation is often classified as revolutionary, radical or incremental [44]. The term revolutionary innovations can be used to describe major conceptual advances, such as the identification of microbes and classes of anti-infection agents. A new understanding of a disease mechanism and a new mode of action that interferes with the disease process at a molecular level can be described by the term radical innovation. A firstin-class medicine (the first medicine of its type) is normally considered to be a radical product. Closely related compounds with different attributes that may offer significant value in treating particular disease variants or patient segments can be referred to as incremental innovations. Following Freeman s classification for products with respect to degree of innovation, the term substances in our study refers to incremental innovation, while classes refers to radical innovation. A notable finding of our study is that longevity seems to depend on the number of substances, not the number of drug classes launched. This finding means that incremental (same class, but different substances) innovation on an aggregate level can be seen to contribute to improved health and also could be cost saving. The increased number of drug substances that we used as a proxy for innovation could also mean that more patients are treated, and therefore that benefits arise from extended patient populations, i.e. a volume component. In addition to the volume component, more innovative substances mean more treatment options that could be used for a better fit with different patients, and therefore result in better outcomes. This finding is important to consider from a policy perspective since it indicates that horizontal or incremental innovation contributes to health improvement and should not be discouraged by policy measures. Overall, the estimates provide support for the hypothesis that an increase in the number of substances that have been marketed and that may be used to treat a disease causes a rightward shift of the age distribution of deaths from the disease several years later. 20

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